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Wage effects of non-wage labour costs

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  • Cervini, María
  • Ramos, Xavier
  • Silva, José I.

Abstract

We study wage effects of two important elements of non-wage labour costs: firing costs and payroll taxes. We exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than thirty and over forty five years. Theoretical insights are gained with a matching model with heterogeneous workers, which predict a positive effect on wages for new entrant workers but an ambiguous effect for incumbent workers. Difference-in-differences estimates, which account for the endogeneity of the treatment status, are consistent with our model predictions and suggest that decreased firing costs and payroll taxes have a positive effect on wages of new entrants. We find larger effects for older than for younger workers and for men than for women. Calibration and simulation of the model corroborate such positive effect for new entrants and also show a positive wage effect for incumbents. The reduction in firing costs accounts, on average, for one third of the overall wage increase.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34033.

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Date of creation: 10 Oct 2011
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Handle: RePEc:pra:mprapa:34033

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Keywords: Dismissal costs; payroll tax; evaluation of labour market reforms; difference-in-difference; matching model; Spain;

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References

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  27. Cervini-Plá, María & Ramos, Xavi & Silva, José I., 2010. "Wage Effects of Non-Wage Labour Costs," IZA Discussion Papers 4882, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
  2. Cervini-Plá, María & Ramos, Xavi & Silva, José I., 2010. "Wage Effects of Non-Wage Labour Costs," IZA Discussion Papers 4882, Institute for the Study of Labor (IZA).
  3. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2013. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Development Working Papers 354, Centro Studi Luca d\'Agliano, University of Milano.
  4. Hallberg, Daniel, 2011. "Is Early Retirement Encouraged by the Employer?: Labor-Demend Effects of Age-Related Collective Fees," Arbetsrapport, Institute for Futures Studies 2011:6, Institute for Futures Studies.
  5. Marco Leonardi & Giovanni Pica, 2007. "Employment Protection Legislation and Wages," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 175, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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